Two Exceptional Dividend-Yielding Stocks Worth Investing in December
Regularly receiving funds from share dividends from companies is an enjoyable sensation. It softens the blow of market fluctuations and provides a steady income stream, especially in your retirement years when you might need it the most.
Currently, the S&P 500's typical return is at a multi-year minimum of 1.22%, but there are robust businesses providing yields substantially higher than this. Here are two such stocks that offer yields more than 2%, along with favorable prospects to boost their dividends in the long run.
1. The Home Depot
The Home Depot (HD, -0.11%) has been a consistent growth stock for many years. The major home improvement retailer has consistently paid dividends for an incredible 37 years. Over the previous five years, the dividend has expanded by 65%, resulting in the current quarterly payment of $2.25 per share.
The Home Depot reported a marginal decrease in comparable store sales during Q3, as expenditure on large remodeling projects remains sluggish. However, the stock has risen despite the weak sales performance, with recent residential property acquisitions indicating a potential reversal in fortune. If this trend continues into 2025, The Home Depot might witness a return to sales growth.
As the leading home improvement retailer, The Home Depot benefits from significant scale with numerous stores and an extensive supply chain. Its wide range has made it a popular choice for home improvement projects. Management is investing in expanding its same- and next-day delivery service, demonstrating its willingness to invest in future growth even during a period of weak sales.
Revenue and earnings are expected to continue increasing and funding increased dividend payments, given the company's mission to capture a $1 trillion home improvement market. The Home Depot's return on invested capital exceeds 20%, which means it should deliver strong earnings growth as it invests additional capital to expand operations and capitalize on this growth opportunity.
The company allocated 60% of its trailing earnings towards dividends, resulting in a forward dividend yield of 2.19%. With an above-average yield, the stock presents solid value and is likely to hit new highs as the housing market recovers.
2. Nike
Nike (NKE, 1.37%) is the largest sports apparel brand, generating $50 billion in revenue over the past 12 months. A weak consumer spending environment has affected the brand negatively in 2024, leading to the company rehiring company veteran Elliott Hill as its new CEO. With the stock offering its highest dividend yield since 2009, this could be an excellent buying opportunity, as Hill's appointment could be a significant catalyst for Nike to return to growth and maximize its potential.
Nike's stock has experienced a 50% drop from its previous peak. Revenue decreased by 10% year-over-year in the most recent quarter, and the Wall Street consensus expects full-year revenue to decline by about 8%. However, the turnaround won't occur overnight, but management is actively addressing the issue and making adjustments to its product line to boost sales.
A positive aspect from the latest earnings report is the strong sales of running shoes, which has been Nike's innovation strength for decades. "The order book for the coming spring '25 footwear units shows double-digit growth versus the previous year," CFO Matthew Friend mentioned during the recent earnings call.
Meanwhile, the dividend remains secure due to a moderate payout ratio. Nike is allocating 40% of its trailing earnings towards dividends, which enables it to maintain the dividend and even expand it during periods of weak sales. In fact, the company recently increased the quarterly dividend by 8% to $0.40 per share.
Analysts predict the company will report full-year adjusted earnings per share of $2.74 – a decrease from $3.73 in the previous year. But Nike boasts a high return on invested capital of 22%. With the athletic wear industry anticipated to grow from $213 billion in 2023 to $294 billion by 2030, according to Statista, Nike has lots of potential to deliver improvements to shareholders.
The present downturn could be a desirable purchasing opportunity. Nike raised its dividend by 51% over the previous five years and is expected to continue rewarding shareholders for many years to come.
Investing in stocks like The Home Depot and Nike can offer attractive returns, especially with their substantial dividend yields. For instance, The Home Depot has a forward dividend yield of 2.19%, making it a solid value option with the potential to hit new highs as the housing market recovers. Similarly, despite Nike's current financial challenges, its high return on invested capital of 22% and an anticipated growth in the athletic wear industry indicate promising dividend growth in the future. Managing your finances wisely and considering such investments can contribute significantly to your overall financial strategy and retirement planning.
Considering the current market situation, investing in dividend-paying stocks like The Home Depot and Nike can offer a stable income stream, even with the S&P 500's typical return at a multi-year minimum. Dividend reinvestment, in particular, can help grow your wealth over time, as the reinvested dividends purchase additional shares, effectively increasing your investment's potential for future returns.
